The Department of Labor on Thursday published the first of several FAQs to help people prepare for its upcoming conflict-of-interest rule that goes into effect on April 10, 2017.
Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration at the DOL, said in a blog post that the questions, based on input from the financial services industry and others, “allow the department to clarify important parts of the rule, and head off misunderstandings that could lead to bad results for retirement savers or financial services professionals.”
This first set of FAQs addresses how the Labor Department will implement the new rule. One subject of particular concern is how the “best interest contract” exemption will work. The exemption provides that financial institutions cannot “use or rely upon quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or would reasonably be expected to cause advisers to make recommendations that are not in the best interest of the retirement investor.” The FAQ addresses how that would apply to commission rates based on volume, with escalating thresholds.
The exemption, plus one for principal transactions, will be phased in, starting on April 10. Financial advisers and institutions will have a transition period with fewer conditions until Jan. 1, 2018, according to the FAQ. During the transition period, financial institutions and advisers must comply with “impartial conduct standards” ensuring that advice is in the best interest of the investor, and not the firm. Financial institutions must also inform investors of the firm's fiduciary status and describe material conflicts of interest during the transition period, the FAQ said.
Ms. Borzi encouraged people to come to DOL officials with questions about the new rule, which was six years in the making. “It's always better to get an answer straight from the source than to drive ahead with processes or practices that may run afoul of the law,” she said in the blog.
The National Tax-Deferred Savings Association, whose members serve the public-sector retirement plan industry, on Thursday called on the Department of Labor to extend the new fiduciary rule to governmental plans.
The FAQ is available on the DOL's website.